GOOGLE ANALYTICS

Tuesday, February 9, 2016

Well also one thing I would discuss
later in this article is that Iran is not in discussion with Saudi Arabia its
European companies. Now, coming back to the earlier point which I was
discussing,that no more QE and no more printing of money would be working now. We
have witnessed negative interest rates on government bonds from Switzerland,
Denmark, and Germany and now Japan. The best game for any economic
policy is the weaken its currency, which leads to cheapening of its exports and
let other countries buy more of its goods and services particularly those have
higher-yielding currencies. Further the problem will be more with pension and
retirement based funds across the globe since restriction of withdrawal as well
as no gains on their savings would spook more problems in the long term. Deflation
problems cannot be solved through Negative Interest rates policies. If we look
at the history over the last 1 year we find that ECB came up with rate at minus
0.10% in the summer of 2014. It did not work to control deflation and it
further lowered its rate at minus
0.30%. In Swiss Central Bank came up with a minus 0.25% interest rates and
later on dropped it further to minus 0.75%. The problem did not end here, infact
many commercial banks are introducing fees to open and maintain an account

We have already witnessed
currency war and now we are going to witness a new paradigm of interest rates
where Negative Interest Rates will play replacing Zero Interest rates. After
Japan now many countries across the globe would move towards this policy which
will spook a bubble burst for the debt market and Sovereign Wealth Funds in the
long term.

Negative interest rates mean that
in order to park funds in bank one has to pay interest. Ideally it never happens
like that but bank doesn’t pay any interest rather they deduct the expenses
form the savings of cash. This is what Switzerland’s interest rates have
been doing over the last 10 years. On the other hand many will say that
negative interest rates might induce more borrowing and consumption, but there
is heavy risk of people exiting bonds and debts product into cash. So US
will not go for negative interest rates. Coming to other economies we might
have to wait and watch what other economies do to keep their export market to
alive. The problem is with the Pension fund manager who need generate positive
cash flow to the elderly person. Now the worst thing which will happen is
they will scout desperately for high-yield bonds, emerging market debt, and
high-dividend equities which will create bubble in debt and hybrid
product categories.

This is one of the prime reasons why
companies like Moragn Stanley, Credit Suisse and other banker have been cutting
down their debt wealth management part especially in Asia. They have huge herculean
pressure of providing returns on their investments as they getting into lending
game whether is real estate debt, structured credit products or high yield
loans to fetch returns over. Now with this ongoing problem of debt sovereign
wealth funds are now seeking permission to invest in infrastructure, renewable
energy etc. This has two parts 1) Safe
assets are at risky point and 2) Investments in other sectors will be like
bubbles being created. The largest sovereign wealth funds in the world include Norway at
$900 billion; UAE Abu Dhabi at $775 billion; Saudi Arabia at $740 billion; and
Kuwait at $410 billion. China has three such funds including Hong Kong that
total $1.5 trillion.

Iran is not in recent discussion with
Saudi Arabia for crude price negotiation. It’s actually the European companies who
are approaching the Middle East for crude negotiation since Euro will come up
with bond purchase and in order to get buyers Middle East Sovereign Funds
inflow in the bonds are crucial. Hence the trade off is going to begin. Everyone
is trying to pull funds from the other asset classes particularly from Debt and
invest in equities. Coming to the last part US fed might find its difficult to
go for interest rate hike but in order to pool and stop leakages of fund
outflow from Sovereign they may go ahead. Further a pull of US economy in term
of interest rates coming down might act as political weapon to win but might
not be reasonable things since that would create sentiment of weak US economic
growth prospects. The current situation
is very crucial. There is no proper road map for the recovery as long as Crude
and Commodity prices don’t grow.

0
comments:

About Me

I am a economic,financial writer and research analyst. I am an Economist |Editor | Author | Columnist | Speaker|Strategist|. Digging out facts and making indepth analysis of financial matters is my life work.I love discussing and making financial strategies to meet the financial objectives of the life.At the same time I am an avid reader. Books are my passion. No matter how busy I am, I always manage to find time for reading. I also enjoy cooking good food, Hindi music & a good cup of coffee.One of my personal traits I am most proud of is being creative and artistic.

Total Pageviews

Search This Blog

VISTORS FOR THE DAY

SHARE IT

DISCLAIMER

All data and information provided on this site is for informational purposes only.The opinions expressed here represent my own .It does not provide stock tips.No person should use any data from this Blog as it belongs solely to the writer of the Blog.